Every compensation system results in unintended consequences.

When you base compensation on commission, your people will generally do their best to drive up their personal income. When you provide a salary, you’ll get focus on a different set of activities.

Many firms come up with a hybrid system involving commission and salary. The focus of the employees will depend on the specifics of the plan.

Whatever system you design will likely generate the expected results.

Unfortunately, it’ll also generate some unexpected results as well.

What will you get? It’s hard to predict. The only certainty is that you’ll get something you didn’t expect.

The unexpected is manageable as long as you expect it. You’ve got to expect the unexpected.

You need a plan for dealing with the fallout from your compensation system.

What Happened When We Moved to Commission-Based Compensation

We’ve had fallout in our firm. Moving to a commission system wasn’t always smooth sailing.

The system we use in our firm is simple:

• We pay a percentage of revenue to the producing attorney at the close of the matter.
• We also pay a percentage of revenue to the originating attorney at the inception of the matter.

It’s a very easy system to understand and manage.

What are the unintended consequences?

Turns out we have some work that needs to be done that doesn’t involve opening and closing files.

• We need lawyers to train other lawyers.
• We need help with internal systems.
• We need someone to answer questions on our website forum.
• We need lawyers to assist with organizing forms, to prepare continuing education programs, to manage former client inquiries, etc.
• The list goes on and on.

It’s embarrassing to tell you that we didn’t anticipate the issues we had as we moved from salary to commission. We should have done better. Hopefully, you’ll learn from my mistakes.

With our commission system, our lawyers don’t want to handle these tasks and projects not covered by the commission. Why? Because they get paid to produce and originate. Why spend time on other tasks when you’re getting paid to produce and originate?

They’re right. They’re sensible. They’re mercenary.

The bad news is that we have stuff that’s not getting done. The good news is that our lawyers understand and behave consistently with our compensation system.

Our system gets exactly what it ought to get. We’re left without anyone to do the work that wasn’t included in the original design of the system. It works perfectly; it just doesn’t accomplish all of the work.

Learn from our experience. Build your system so you get everything done. Make your system better than ours.

The One Lesson You Must Learn

But the key lesson to learn is not how to build an excellent compensation system. You won’t get it right, no matter how hard you try.

The key lesson is to recognize that you’re going to make some mistakes. Hopefully, you’ll make fewer mistakes than me, but recognize that you need to be ready for some unintended consequences.

What you need to do to be prepared for what’s coming is to leave some money behind.

[ While I have you here, I wanted to remind you that you can get the latest articles delivered to your inbox a week before they go up on the web. Just one email per week. Sign up here. ]

Don’t invest every penny you can afford into your compensation system. Hold something back. Leave some money in reserve so you’ll have it to fix the issues you overlook.

We’ve patched things together by paying stipends for various tasks. We pay a bit extra for the projects and tasks that aren’t covered by the commission system. We’ve had to feel our way through each issue as we figure out that it’s not getting done.

Build a compensation system that’s perfect. Get it all right. Then step back and watch it play out. That’s when you’ll discover the unintended results. Now you can put those reserve funds to work to solve the problems.

Payroll covers more than origination and production. It includes the broad range of projects and tasks required by every law firm and business. The legal work is just part of what needs to get done.